Royal Caribbean's Continued Freefall

I mentioned cruise operator Royal Caribbean (RCL) Wednesday [Jan 28: Royal Caribbean to $1?]; frankly I wish I had thought about this subsector of the economy sometime over the past year and a half as I denounced consumer discretionary spending. Missed it completely. The stock was in the mid $9s Wednesday but with an earnings report coming, I did not want to place a wager in front of that event, but the stock has continued its implosion. RCL just broke below $7 [$6.49 at Friday's close]. I usually don't praise herding behavior analysts but looks like this was an excellent call by Barclays Capital; especially coming the day ahead of earnings.

Here is a snippet of their earnings (emphasis mine):

• Royal Caribbean Cruises Ltd. said Thursday that its fourth-quarter earnings tumbled 98 percent, missing Wall Street's expectations, as cruise bookings fell and the company's fuel costs were higher than expected. The company also issued guidance for the first quarter of 2009 and the full year that fell well short of analysts' expectations. Cruise pricing remains very weak, although bookings have started to stabilize, the company said.

• For the key "wave period" -- from January through March, when cruise bookings are generally high -- Royal Caribbean said it has stabilized bookings by cutting prices dramatically. Chief Financial Officer Brian Rice said onboard revenue also began to suffer during the fourth quarter as passengers trimmed their spending, particularly on gambling.

• Royal Caribbean reported liquidity of $1 billion as of Dec. 31. On the conference call, managers stressed that they are comfortable with the company's cash position but said they may seek to extend the maturity date on some debt or take other action to enhance the company's financial position this year.

So this is a lot like what retailers are doing - to protect the revenue line they are slashing prices to create demand. That's fine for revenue; not so fine for profits.

The stock has fallen so quickly I'd expected a "rubber band" (reversion to mean) rally at some point relatively soon... it is nowhere near any resistance level. But I expected that with a lot of other "worst of breed" sectors and outside of REITs (government bailouts coming, baby) most of the worst of groups are still far away from key resistance levels.

Disclosure: No position

Comments

[2houndz:]

I should have been on this as well. Didn't take a genius to see this coming.

Jan 30 08:52 PM

[Jake Berzon:]

Who has the money to spend on cruises, while worrying about loosing their job? RCL shares' price action so far is not at all surprising. What I want to know is, do they have enough cash to weather a sustained downturn? If they do, at some point this stock turns into a buy.

Jan 31 12:49 PM

[prudentinve...:]

The entertainment and leisure sector, along with the retail sector, have gotten unsustainably large in proportion to other, necessary facets of a stable economy.

Jan 31 01:14 PM

[notsosmart:]

cruising was great as long as the bubble floated.its over for now.these line should get smart & offer cabin only trips.you buy your own food as you feel like eating.you can eat rich or poor,lots or little.i stopped cruising a long time ago as i felt i had to eat everything in sight as i paidfor it. if i paid it would be a more normal day.they should try it.

Jan 31 01:35 PM

[Chickenpookie:]

Morgan Stanley and Goldman Saks should by up two of these cruise lines using TARP funds. They could than go ocean racing...

Jan 31 06:53 PM

[Jack K:]

I remember reading/seeing positive reports on this company and the industry a year or so ago when the the stock was around 40. The spin was basically, as times gets tough people look for value and you get a lot on a cruise. Don't you wish you could be wrong on your job, and few people remember it.

Feb 01 06:35 AM

[investor88:]

Prospects for RCL are quite dismal in a deep recession because cruising is a discretionary spending activity which people will reduce.

Feb 01 07:22 AM

[Ryanwahlstrom:]

href="cruisemarketwatch.com/.../">Cruise
Pulse survey tracks monthly travel agent booking trends and
based on results Cruise Market Watch revised downward worldwide
cruise revenue estimates for 2009. Updates during the wave season and subsquent quarters of 2009.

Feb 03 07:23 AM

[raytayzmd:]

...well, one nice thing is that fuel represents a substantial expense and declining oil prices should mitigate that...also, their cruise related expenses overall are quite "negotiable" -- e.g. commissions...they have quite a bit of debt but interest expenses have been declining...I've put them on my "bottom-feding" watch.

Feb 03 10:27 AM

[Cruise Trav...:]

Royal Caribbean Cruises Ltd. End-of-Day Stock Quote for May 7, 2009 $16.44...
Why didn't i buy :(

May 07 05:37 PM

[kaida:]

Cruising is a discretionary spending activity that many of us carefully plan for recession or not, we all need recreation. I do think it now makes all companies consider better customer service to keep customers coming back regardless of the recession. From personnel experience, RCL needs to step it up in that category or they will not make it in this recession.

May 10 08:05 PM